Let’s Separate Fact From Fiction Regarding Credit Scores & Home Mortgages

By JIM SMITH, Realtor

The ink may barely be dry on your 2020 financial resolutions, and already there is great news for those of you who have resolved to become first time homeowners or to increase your real estate holdings in 2020. Both the National Association of Realtors and the Mortgage Bankers Association predict that interest rates will remain at record lows (at or below 4.0%) for most of 2020. 

Of course, interest rates directly affect your home buying power, and you are probably aware that credit scores also directly impact the interest rates offered to you by mortgage lenders. What we don’t always know, however, are the specific actions that will hurt or improve our credit scores. 

So, let’s separate fact from fiction. I thank Jaxzann Riggs of The Mortgage Network for helping me with debunking the following fictions.

Fiction: Shopping for a mortgage lender and allowing more than one lender to review your credit report will hurt your credit score.

Not true. When multiple inquiries appear on your report from mortgage lenders, the scoring models assume that you are shopping for a home loan. Most scoring models consider inquiries from mortgage lenders that occur within a 15 to 45-day period to be one inquiry, having little or no impact on your score. Regularly monitoring your own credit score online prior to applying for a home loan is an effective way to identify any errors contained in your credit file and to obtain a sense of the score that lenders will be using when preparing credit offers for you. It is important to note however, that there are in excess of 20 different scoring models and that online “consumer” reports typically have a higher score than your mortgage lender sees when pulling a “tri-merged residential mortgage” report. Most lenders are willing to start the prequalifying process with a copy of your online report but will require their own report prior to issuing a preliminary loan commitment which is normally required at the time that you write an offer to purchase a property.

Fiction: Opening a new credit card account will increase your score.

The average age of your open accounts impacts your score, and since opening one or more new accounts brings the average age of your total credit profile down, opening new accounts is normally not wise. The exception to this is the prospective first-time buyer who has little or no credit. Obtaining a retail or major credit card helps to build credit “depth.”

Fiction: Carrying a balance helps to boost your score.

Maintaining a balance on your cards does not improve your score, it simply costs you more in interest fees. Utilization of available credit is an important factor in determining your score. If you are unable to pay your credit cards in full each month, keeping the balance on the card below 30% of the credit limit is best. Another strategy to improve “utilization” is to request that your card issuer increase your credit limit. By increasing your available credit line but not your balance, you instantly lower your utilization.

Fiction: Closing accounts that you don’t use will boost your score.

Rather than closing a high interest rate card that you no longer use, request that the creditor reduce the rate and/or occasionally use and then promptly repay the card in full. Closing accounts reduces the overage credit available to you, which negatively impacts both “utilization” and “duration” of your credit profile.

    Questions? Just call Jaxzann Riggs of The Mortgage Network at 303-990-2992.

In Colorado, Real Estate Brokers Are Granted the Limited Practice of Law

Colorado is a great state to buy and sell real estate — and to be a real estate broker. In other states, as many as four lawyers must be retained in the typical real estate transaction — one by each party to the contract, and one by the broker for each side. This can make the cost of buying and selling real estate in such states unduly expensive.

Although I have only been a licensed real estate broker in Colorado, I have bought and sold real estate in New York, Virginia and Hawaii.  Colorado is definitely the best.

In Colorado, the only costs of selling real estate are the 1) title insurance, 2) real estate commissions, and 3) the fee charged by the title company for closing the transaction, although there may be additional costs charged by your HOA or its management company, when applicable. There are no state transfer fees or taxes. Since the above fees are typically paid by the seller, a buyer who does not require a mortgage to purchase real estate pays only his share of the title company’s closing fee ($100 to $400 typically), plus the cost of recording the transaction with the county, which is 1/10th of 1% of the sales price. Buyers who take out a mortgage loan to finance their purchase are the only ones with significant additional costs when purchasing real estate in Colorado.

In 1957, the Colorado Bar Association sued to require lawyers’ involvement in real estate transactions, but the Colorado Supreme Court ruled in the Conway Bogue decision that real estate licensees could provide the limited legal service of interpreting and completing state-approved forms for buyers and sellers.

Among the arguments in support of that decision, the court cited the lack or shortage of lawyers in many Colorado counties and the fact that real estate licensees had been performing that function for 50 or more years with no evidence that the public — or lawyers — had been harmed.

The court did require that this service only be performed by licensees who were retained to represent one or both parties in the transaction and that no separate fee be charged for completing the forms beyond the compensation already being earned by the licensee for the transaction.

Sixty-three years later, the Conway Bogue decision is still the law in Colorado, allowing the limited practice of law by real estate brokers, and we can all be glad for it. Imagine if you had to pay $100 or more per hour to a lawyer to counsel you through every step of a real estate sale or purchase!

As I said, we licensees only have the ability to interpret and complete state-approved forms, such as listing agreements, buyer agency agreements, purchase contracts, counterproposals, amendments, disclosures, inspection objections, post-closing occupancy agreements, and the numerous other forms approved by the Colorado Real Estate Commission.

Any seller is allowed to replace those state-approved forms with ones created by an attorney, and home builders routinely use their own contracts. While we can and do represent buyers of new homes, we may not counsel our buyers regarding those documents, since that would constitute practicing law without a license. Instead, we must recommend that buyers hire a real estate lawyer to review them,  Of course, we only recommend legal advice (just as we recommend getting tax advice), but the buyer is free to ignore that recommendation, which many of them do, opting instead to study the documents by themselves and ask questions of the builder’s sales personnel.

Do You Really Need a Buyer’s Agent?

Like most real estate professionals, my broker associates and I make a living representing both sellers and buyers of real estate.  Occasionally I encounter a buyer who doesn’t want to have an agent of his own, preferring to deal directly with the listing agent.

The most common reason given is that the buyer thinks he can negotiate a better deal by saving the seller the 2.8% commission typically paid to a buyer’s agent.  In fact, doing so usually saves the seller nothing since the buyer’s agent is paid by the listing agent, not by the seller. Al-though our policy at Golden Real Estate is to reduce the listing commission if we don’t have to share it with the buyer’s agent, that’s not the practice among the majority of listing brokerages.

Also, there’s the issue of representation. If you deal directly with the listing agent, the best you can expect is that the agent will be a neutral party, but in most cases that agent will continue to work in the seller’s best interest and treat you as a “customer.”  As a buyer, you should really want someone on your side, negotiating in your best interest, not just regarding the contract price but later when it comes to inspection and other issues.  In the case of buying from a builder, such representation is even more important.

Real Estate Agents Have a Responsibility to Report Wrongdoing

As with many professions, we real estate professionals are largely, though not completely, self-policing. Indeed, in a recent continuing education class, we were taught that we have an “affirmative responsibility” to report wrongdoing by our colleagues, whether the offense is illegal, contrary to real estate commission or MLS rules, or, in the case of Realtors, is unethical.

(Many real estate agents belong to brokerages where membership in the Realtor association is not required, and only Realtors are bound by the Realtor Code of Ethics and can be disciplined for violating it. Ask if your broker is a Realtor.)

Of course, the public can also file complaints against licensees. You can do it online here or you can mail a complaint to the Division at 1560 Broadway, Suite 925, Denver CO 80202. You can ask to remain anonymous, but an investigator will call to interview you.

Unless a broker is independent, you can also complain to his brokerage. Ask to speak with the managing broker. If he’s a Realtor, you can file an ethics complaint with his Realtor association. Here’s a link for doing so online.

I have filed complaints about illegal behavior with the Division. I have also sent numerous emails to our MLS about violations of MLS rules and regulations — including last week when a listing agent listed himself instead of one of our broker associates as the selling agent for his listing. (Email compliance@REcolorado.com.) I have also filed ethics complaints against a fellow Realtor through my Realtor association.

By accepting that “affirmative responsibility” to report wrongdoing of any kind by fellow licensees and fellow Realtors, we protect and advance the reputation of our industry and of the Realtor brand. As managing broker at Golden Real Estate, I promote this responsibility, as I did at our weekly office meeting earlier this month.

Although some people like to demean real estate licensees and even Realtors, I have found that the vast majority of us are true professionals who put our clients’ interests above our own, as required by both law and ethics, and I am proud to be a member of this profession.

What Do the Year-End Stats Tell Us About Denver’s and Jeffco's Real Estate Market?

As with politics, “all real estate is local.” News reports about the national real estate market going up, down or sideways may or may not apply to where you live. I don’t have the space to provide the stats for your subdivision, but I can certainly provide them for Denver and for the metro area using data from REcolorado, our MLS.

    The charts below contain what I consider to be the most useful statistics for assessing the health of the real estate market in the City & County of Denver compared to the rest of the metro area, which I’m defining as within a 17-mile radius of the state capitol.  That radius includes Aurora but not Parker on the east and southeast, Highlands Ranch but not Castle Rock to the south, Golden to the west, and Broomfield and Thornton but not Brighton or Boulder to the north. Basically, it includes most of what I consider urban and suburban Denver.

What we learn from these statistics covering the last five years is that the median sales price has continued to rise by a significant amount every year, both in Denver and the rest of the metro area. The same was true for the price per square foot except for a slight dip between 2017 and 2018 in Denver (and, by the way, in Jeffco) but not for the rest of the metro area as a whole.

The ratio of selling price to listing price has been on a steady decline in both charts, but the drop in 2019 was much sharper, sinking below full price. Meanwhile, the median days that it took listings to go under contract was pretty steady until 2019, when it surged by over 50% both in Denver and the rest of the metro area. The number of sold listings has remained steady for all five years, but notice the surge in expired (unsold) listings in both 2018 and 2019. 

Now let’s look at how this December in Denver compared to previous Decembers:

In that chart you see that there has been an improvement over past years in every indicator except days on market and the number of listings that expired without selling. Median sold price and price per square foot are at record highs for December. The ratio of sold price to listing price is slightly higher than in 2018, although still under listing price. It will be interesting to see how January shapes up. As I write this on Monday evening, there have already been 125 closings of Denver listings and there were only 907 Denver listings under contract, so it’s not looking good for matching last January’s number of 1,665 sold listings.

Now, let’s look at the same analysis for Jefferson County’s real estate market.

What we learn from these statistics covering the last five years is that the median sales price has continued to rise by a significant amount every year, both in Jeffco and the rest of the metro area. The same was true for the price per square foot except for a decline between 2017 and 2018 in Jeffco, as in Denver, but not for the rest of the metro area as a whole.

The ratio of selling price to listing price has been on a steady decline in both charts, but the drop in 2019 was much sharper, sinking below full price. Meanwhile, the median days that it took listings to go under contract was pretty steady until 2019, when it surged by about 50% both in Jeffco and the rest of the metro area. The number of sold listings has remained steady for all five years, but notice the surge in expired (unsold) listings in both 2018 and 2019. 

Now let’s look at how this December in Jefferson County compared to previous Decembers:

In that chart you see that there has been an improvement over past years in every indicator, including a drop in the number of listings that expired without selling. Median sold price and price per square foot are at record highs for December. The ratio of sold price to listing price is slightly higher than in 2018, although still under listing price. It will be interesting to see how January shapes up. As I write this on Monday evening, there have already been 93 closings of Jeffco listings and there were 549 Jeffco listings under contract, so it’s looking pretty certain that we’ll beat January 2018’s number of 553 sold listings.

January Is National Radon Action Month. Here’s What You Need to Know:

Here in Colorado, about half our homes have elevated levels of radon, a naturally occurring gas created by the decay of radioactive radium in our soils. It is the leading cause of lung cancer in non-smokers. Here’s a link for an excellent YouTube video explaining radon and how it’s mitigated.

Most real estate professionals, including the agents at Golden Real Estate, are well aware of this issue and will always advise the buyers we represent to have the home they are buying tested for the level of radon gas as part of the home inspection process.

Notice that I didn’t say to test for the presence of radon gas, but rather the level of radon gas.  That’s because radon gas is present even in “fresh” air. But it can concentrate when it seeps into your basement, crawl space and even your above-grade living areas.

Since a high level of this gas is considered a “health and safety” issue, a seller is essentially obligated to accept responsibility for having the radon level mitigated or to compensate the buyer for doing it after closing. 

At Golden Real Estate, we have a hand-held device smaller than a TV remote which we can lend to sellers prior to listing their home so they’ll know in advance what level of radon a buyer’s inspector is likely to discover. Ace Hardware has this same device for sale for $199.

There are less expensive mail-in radon tests that you can purchase at Home Depot or Lowe’s, but they’re also free at multiple locations — including from our office at 17695 S. Golden Road in Golden. These DIY kits should not be considered adequate for use in a real estate transaction.

During the home sale, it’s best to have a certified radon measurement contactor do the official test. You can find a list at www.ColoradoRadon.info. The test utilizes an electronic device which samples the air every hour over a 48-hour period. It can detect whether the device has been disturbed and whether there have been changes in atmospheric conditions which might suggest that windows or doors have been opened to allow fresh air into the house. Inspectors charge between $100 and $150 for this test, but it’s well worth the expense, especially if the results of the test show that the level of radon gas exceeds the EPA action level of of 4 picocuries per liter of air. If the test shows a level greater than that, the buyer can demand that the seller have radon mitigated. That typically costs about $1,000, so the testing is well worth the additional inspection cost.

Below is a diagram showing how radon is mitigated use sub-slab depressurization:

(from Wikipedia)

Coming: Big Changes to Denver's MLS

It won’t be that obvious to consumers accessing our MLS at www.REcolorado.com, but agents who login to it will need to adjust to many changes that will take effect this coming Monday, January 13th. We at Golden Real Estate are studying the 45-minute instructional video provided to us by REcolorado.

The reason for the overhaul is to make the MLS database 100% compatible with national standards promulgated by the National Association of Realtors.

Another change coming within the next couple of months is an MLS rule restricting the use of “pocket listings” and “coming soon” listings, which are kept off the MLS, often to benefit the listing agent, not the seller. In a nutshell, the rule will say that any listing by an MLS member must be made active on the MLS within one day of any promotion of the listing, which includes putting a sign in the yard, promoting it online or on social media, or in any other way. 

Look for more details in this space on the roll-out of this rule when we get closer to its implementation. This rule was mandated in November by a nearly unanimous vote of the National Association of Realtors’ board of directors.